Cleanup-Rewrite Date=March 2009

===The marketing revolution===

The 1970s also saw the rise of the [[marketing orientation|marketing oriented]] firm. From the beginnings of capitalism it was assumed that the key requirement of business success was a [[product (business)|product]] of high technical quality. If you produced a product that worked well and was durable, it was assumed you would have no difficulty selling them at a profit. This was called the [[production orientation]] and it was generally true that good products could be sold without effort, encapsulated in the saying "[[Build a better mousetrap and the world will beat a path to your door]]." This was largely due to the growing numbers of affluent and middle class people that capitalism had created. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. The answer was to concentrate on [[selling]]. The 1950s and 1960s is known as the sales era and the guiding [[philosophy of business]] of the time is today called the [[sales orientation]]. In the early 1970s [[Theodore Levitt]] and others at Harvard argued that the sales orientation had things backward. They claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The customer became the driving force behind all strategic business decisions. This [[marketing]] orientation, in the decades since its introduction, has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, [[customer intimacy]], customer focus, customer driven, and market focused.

===The Japanese challenge===

By the late 70s, Americans had started to notice how successful Japanese industry had become. In industry after industry, including steel, watches, ship building, cameras, autos, and electronics, the Japanese were surpassing American and European companies. Westerners wanted to know why. Numerous theories purported to explain the Japanese success including:

* Higher employee morale, dedication, and loyalty;

* Lower cost structure, including wages;

* Effective government industrial policy;

* Modernization after WWII leading to high capital intensity and productivity;

* Economies of scale associated with increased exporting;

* Relatively low value of the Yen leading to low interest rates and capital costs, low dividend expectations, and inexpensive exports;

* Superior quality control techniques such as Total Quality Management and other systems introduced by [[W. Edwards Deming]] in the 1950s and 60s.<ref>Schonberger, R. ''Japanese Manufacturing Techniques'', The Free Press, 1982, New York.</ref>

Although there was some truth to all these potential explanations, there was clearly something missing. In fact by 1980 the Japanese cost structure was higher than the American. And post WWII reconstruction was nearly 40 years in the past. The first management theorist to suggest an explanation was Richard Pascale.

In 1981, [[Richard Pascale]] and [[Anthony Athos]] in ''The Art of Japanese Management'' claimed that the main reason for Japanese success was their superior management techniques.<ref>Pascale, R. and Athos, A. ''The Art of Japanese Management'', Penguin, London, 1981, ISBN 0-446-30784-x.</ref> They divided management into 7 aspects (which are also known as [[McKinsey 7S Framework]]): Strategy, Structure, Systems, Skills, Staff, Style, and Supraordinate goals (which we would now call shared values). The first three of the 7 S's were called hard factors and this is where American companies excelled. The remaining four factors (skills, staff, style, and shared values) were called soft factors and were not well understood by American businesses of the time (for details on the role of soft and hard factors see Wickens P.D. 1995.) Americans did not yet place great value on [[corporate culture]], shared values and beliefs, and social cohesion in the workplace. In Japan the task of management was seen as managing the whole complex of human needs, economic, social, psychological, and spiritual. In America work was seen as something that was separate from the rest of one's life. It was quite common for Americans to exhibit a very different personality at work compared to the rest of their lives. Pascale also highlighted the difference between decision making styles; hierarchical in America, and consensus in Japan. He also claimed that American business lacked long term vision, preferring instead to apply management fads and theories in a piecemeal fashion.

One year later, ''The Mind of the Strategist'' was released in America by [[Kenichi Ohmae]], the head of [[McKinsey & Co.]]'s Tokyo office.<ref>Ohmae, K. ''The Mind of the Strategist'' McGraw Hill, New York, 1982.</ref> (It was originally published in Japan in 1975.) He claimed that strategy in America was too analytical. Strategy should be a creative art: It is a frame of mind that requires intuition and intellectual flexibility. He claimed that Americans constrained their strategic options by thinking in terms of analytical techniques, rote formula, and step-by-step processes. He compared the culture of Japan in which vagueness, ambiguity, and tentative decisions were acceptable, to American culture that valued fast decisions.

Also in 1982, [[Tom Peters]] and Robert Waterman released a study that would respond to the Japanese challenge head on.<ref>Peters, T. and Waterman, R. ''In Search of Excellence'', HarperCollins, New york, 1982.</ref> Peters and Waterman, who had several years earlier collaborated with Pascale and Athos at [[McKinsey & Co.]] asked “What makes an excellent company?”. They looked at 62 companies that they thought were fairly successful. Each was subject to six performance criteria. To be classified as an excellent company, it had to be above the 50th percentile in 4 of the 6 performance metrics for 20 consecutive years. Forty-three companies passed the test. They then studied these successful companies and interviewed key executives. They concluded in ''In Search of Excellence'' that there were 8 keys to excellence that were shared by all 43 firms. They are:

*A bias for action — Do it. Try it. Don’t waste time studying it with multiple reports and committees.

*Customer focus — Get close to the customer. [[Know your customer]].

*Entrepreneurship — Even big companies act and think small by giving people the authority to take initiatives.

*Productivity through people — Treat your people with respect and they will reward you with productivity.

*Value-oriented CEOs — The CEO should actively propagate corporate values throughout the organization.

*Stick to the knitting — Do what you know well.

*Keep things simple and lean — Complexity encourages waste and confusion.

*Simultaneously centralized and decentralized — Have tight centralized control while also allowing maximum individual autonomy.

The basic blueprint on how to compete against the Japanese had been drawn. But as [[J.E. Rehfeld]] (1994) explains it is not a straight forward task due to differences in culture.<ref>Rehfeld, J.E. ''Alchemy of a Leader: Combining Western and Japanese Management skills to transform your company'', John Whily & Sons, New York, 1994, ISBN 0-471-00836-2.</ref> A certain type of alchemy was required to transform knowledge from various cultures into a management style that allows a specific company to compete in a globally diverse world. He says, for example, that Japanese style [[kaizen]] (continuous improvement) techniques, although suitable for people socialized in Japanese culture, have not been successful when implemented in the U.S. unless they are modified significantly.

In 2009, industry consultants Mark Blaxill and Ralph Eckardt suggested that much of the Japanese business dominance that began in the mid 1970s was the direct result of competition enforcement efforts by the [[Federal Trade Commission]] (FTC) and [[U.S. Department of Justice]] (DOJ). In 1975 the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. (At the time, the FTC was under the direction of [[Frederic M. Scherer]]). The 1975 Xerox [[consent decree]] forced the licensing of the company’s entire [[patent]] portfolio, mainly to Japanese competitors. (See "[[compulsory license]]".) This action marked the start of an activist approach to managing competition by the FTC and DOJ, which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies, including [[IBM]], [[AT&T]], [[DuPont]], [[Bausch & Lomb]], and [[Eastman Kodak]].{{Or|date=March 2009}}

Within four years of the consent decree, Xerox's share of the U.S. [[copier]] market dropped from nearly 100% to less than 14%. Between 1950 and 1980 Japanese companies consummated more than 35,000 foreign licensing agreements, mostly with U.S. companies, for free or low-cost licenses made possible by the FTC and DOJ. The post-1975 era of anti-trust initiatives by Washington D.C. economists at the FTC corresponded directly with the rapid, unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U.S. manufacturing economy. <ref>Blaxill, Mark & Eckardt, Ralph, "The Invisible Edge: Taking your Strategy to the Next Level Using Intellectual Property" (Portfolio, March 2009)</ref>

===Gaining competitive advantage===

The Japanese challenge shook the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. The 1980s and early 1990s saw a plethora of theories explaining exactly how this could be done. They cannot all be detailed here, but some of the more important strategic advances of the decade are explained below.

[[Gary Hamel]] and [[C. K. Prahalad]] declared that strategy needs to be more active and interactive; less “arm-chair planning” was needed. They introduced terms like '''strategic intent''' and '''strategic architecture'''.<ref>Hamel, G. & Prahalad, C.K. “Strategic Intent”, ''Harvard Business Review'', May–June 1989.</ref<ref>Hamel, G. & Prahalad, C.K. ''Competing for the Future'', Harvard Business School Press, Boston, 1994.</ref> Their most well known advance was the idea of [[core competency]]. They showed how important it was to know the one or two key things that your company does better than the competition.<ref>Hamel, G. & Prahalad, C.K. “The Core Competence of the Corporation”, ''Harvard Business Review'', May–June 1990.</ref>

Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (H-P), [[Dave Packard]] and [[Bill Hewlett]] devised an active management style that they called ''management by walking around'' (MBWA). Senior H-P managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. The MBWA concept was popularized in 1985 by a book by [[Tom Peters]] and [[Nancy Austin]].<ref>[[Tom Peters|Peters, T.]] and [[Nancy Austin|Austin, N.]] ''A Passion for Excellence'', Random House, New York, 1985 (also Warner Books, New York, 1985 ISBN 0-446-38348-1)</ref> Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).

Probably the most influential strategist of the decade was [[Michael Porter]]. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and [[Porter's cluster|clusters]]. In [[Porter 5 forces analysis|5 forces analysis]] he identifies the forces that shape a firm's strategic environment. It is like a [[SWOT analysis]] with structure and purpose. It shows how a firm can use these forces to obtain a [[sustainable competitive advantage]]. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: Organizational structure follows strategy, which in turn follows industry structure. Porter's [[Porter generic strategies|generic strategies]] detail the interaction between '''cost minimization strategies''', '''product differentiation strategies''', and '''market focus strategies'''. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a [[value chain]]. A firm will be successful only to the extent that it contributes to the industry's value chain. This forced management to look at its operations from the customer's point of view. Every operation should be examined in terms of what value it adds in the eyes of the final customer.

In 1993, [[John Kay (economist)|John Kay]] took the idea of the value chain to a financial level claiming “ Adding value is the central purpose of business activity”, where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. He claims that there are 3 types of capabilities that can do this; innovation, reputation, and organizational structure.

The 1980s also saw the widespread acceptance of [[positioning (marketing)|positioning theory]]. Although the theory originated with [[Jack Trout]] in 1969, it didn’t gain wide acceptance until [[Al Ries]] and [[Jack Trout]] wrote their classic book “Positioning: The Battle For Your Mind” (1979). The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques were applied to positioning theory, some newly invented but most borrowed from other disciplines. [[Perceptual mapping]] for example, creates visual displays of the relationships between positions. [[Multidimensional scaling (in marketing)|Multidimensional scaling]], [[discriminant analysis (in marketing)|discriminant analysis]], [[factor analysis]], and [[conjoint analysis (in marketing)|conjoint analysis]] are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. [[Preference regression (in marketing)|Preference regression]] can be used to determine vectors of ideal positions and [[cluster analysis (in marketing)|cluster analysis]] can identify clusters of positions.

Others felt that internal company resources were the key. In 1992, [[Jay Barney]], for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in unique and sustainable ways.<ref>Barney, J. (1991) “Firm Resources and Sustainable Competitive Advantage”, ''Journal of Management'', vol 17, no 1, 1991.</ref>